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UNITED STATES v. NEW HOLLAND SALES STABLES

September 26, 1985

UNITED STATES OF AMERICA
v.
NEW HOLLAND SALES STABLES, INC. UNITED STATES OF AMERICA v. VINTAGE SALES STABLES, INC. UNITED STATES OF AMERICA v. WALTER DUNLAP & SONS, INC.



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 This is an action in conversion brought by the United States of America on behalf of the Farmers Home Administration (FmHA), holder of security interests in 236 head of cattle. Each defendant is a livestock commission merchant or broker and handled the sales of some of the 236 head of cattle. Holding that defendants had interfered with the government's security interest and thus were liable in conversion to the United States, I granted the government's motion for summary judgment as to liability on December 19, 1984, 603 F. Supp. 1379.

 Conversion is the wrongful taking of or interference with an interest in property. United States v. Sommerville, 324 F.2d 712, 713 (3d Cir. 1963). The conversion in these cases occurred at the time the cattle were sold by the defendant auctioneers. United States v. Gallatin Livestock Auction, Inc., 448 F. Supp. 616, 621 (W.D. Mo. 1978). Each sale deprived the FmHA of its security interest in the cattle sold.

 Under the Restatement Second Torts § 927(1), a party who is entitled to a judgment for the conversion of a chattel may recover "the value of the subject matter of his interest in it at the time and place of the conversion." In other words, the presumption is that the damage caused by the wrongful conversion will be the value of the property at the time of the conversion. The plaintiff has the burden of proving the value of the property while the burden is on the defendants to prove facts which will permit a reduction or mitigation of the damages claimed. 89 C.J.S. § 121. See also 18 Am.Jur.2d § 82 et seq.

 Holding that auctioneers had to be held "strictly accountable," the Third Circuit in United States v. Sommerville, 324 F.2d at 718, affirmed the lower court's award of damages equal to the value of the livestock at the time of the conversion, i.e. at the time of the sale. Similarly, in United States v. Matthews, 244 F.2d 626 (9th Cir. 1957), the court held that auctioneers were liable to the government for conversion even though the government had not foreclosed its mortgage and actually sustained some loss after realizing on its remaining security. "The mortgagee need not first establish that, like a honey-bee, he has flitted from security flower to security flower, and still has not been able to collect sufficient property pollen to satisfy his hunger." Id. at 629. It was for the defendant auctioneers to establish that the government had received payments out of the proceeds of the sales. Id. at 633.

 More recently, the Third Circuit, holding that payment of the chattel's full value to the original owner by the original converter precluded the original owner from further recovery, adopted the Restatement principle that a plaintiff who proves conversion is entitled to damages equal to the full value of the chattel at the time and place of conversion. Baram v. Farugia, 606 F.2d 42 (3d Cir. 1979). The effect, long recognized by the courts is to force the converter to buy the chattel. Once the market value of the chattels converted is established it is for the converter to prove the amount of the proceeds which have already been remitted to the government.

 With these principles in mind, I will now address the motions in limine.

 BURDEN OF PROOF

 Defendants are seeking an order to the effect that the burden of proof at trial will be on the plaintiff to establish the full extent of its actual damages. Defendants rely heavily upon the Third Circuit's opinion in Knuth v. Erie-Crawford Dairy Cooperative Association, 463 F.2d 470 (3d Cir. 1972), cert. denied, 410 U.S. 913, 93 S. Ct. 966, 35 L. Ed. 2d 278 (1973), on remand, 58 F.R.D. 646 (W.D. Pa.), aff'd. without published opinion, 487 F.2d 1394 (3d Cir. 1973) for the proposition that the burden of proving damages should be on the plaintiff at the upcoming trial. Knuth involves a complex situation in which milk producers sued their cooperative for conversion on the grounds that they were entitled to the money that the cooperative had paid as rebates to dairies or milk handlers to meet competition prices. The trial court had permitted plaintiffs to proceed on a theory that it was the money which had been converted and charged the jury that plaintiffs were entitled to the "legal" price for their milk and that the cooperative could not legally pay a rebate to a dairy the effect of which was to undercut the "legal" price and reduce the amount the producers received. The jury concluded that there had been conversion of the money.

 The Third Circuit, in reversing and remanding for a new trial, held that the cooperative had converted the milk and not the money if it had converted anything. Noting that the measure of damages for conversion is the market value of the property converted, the Third Circuit found that by accepting the theory of conversion of money, the trial court had relieved the plaintiffs of the burden of proving damages. It was possible that the price the cooperative paid plaintiffs even after the rebate was higher than the market value of the milk; if this were true, plaintiffs had not been injured.

 Although I accept the principles enunciated in Knuth, I believe that the present case presents a far different scenario which renders Knuth inapposite. First, in Knuth, liability was inextricably wound up with damages. In order to establish liability, plaintiffs had to show by how much they had been injured. Plaintiffs were entitled to receive the proceeds from the sale of their milk and in fact they had received some amount. It was for the plaintiffs to establish that they had not received the entire amount to which they were entitled.

 Here, the FmHA, like the milk producers, held an interest in the cattle which were sold by defendant auctioneers on the open market. It is undisputed that the defendants paid the entire proceeds to the debtor farmer not the FmHA, and I have already concluded that defendants are liable to the government for the conversion. The presumption then arises that the damage caused by the conversion is the value of the property at the time of the conversion. All the parties agree that the price received at each auction reflects the value of the cattle at that time, and therefore, it can be presumed that the government's damages are equivalent to the market value of the cattle limited only by the value of the interest it held in them, i.e. the amount of the then outstanding debt. The government will undoubtedly introduce into evidence the amount of proceeds received from each auction. This will satisfy the government's burden of proof; the ...


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